The general rule for translating liabilities denominated in a foreign currency into the functional currency is to:
A) translate all liabilities using the current rate existing at end of reporting period;
B) first classify the liabilities into current and non-current;
C) first classify the liabilities as monetary or non-monetary;
D) translate all liabilities using the rate current on entering into the transaction.

Question

Quizplus · Accepted Answer

The best choice is to first classify the liabilities as monetary or non-monetary. Monetary liabilities are those obligations to pay a fixed or determinable amount of money, such as trade payables, loans, and bonds. Non-monetary liabilities, such as warranties and contingencies, are not subject to revaluation because they do not involve future cash payments or receipts. Monetary liabilities should be translated at the exchange rate at the end of the reporting period, while non-monetary liabilities should be translated using the historical exchange rate.

The General Rule for Translating Liabilities Denominated in a Foreign